In a recent interview on Meet the Press, financier Ray Dalio, warned of “something worse than a recession” if current financial, economic, and trade issues are not “handled well.” Later in the interview, he warned that if current problems worsen, we could experience a “world order in which there is great conflict.” I agree on both counts—with the caveat that this might be an understatement. Others have issued similar warnings.
For me, Dalio’s comments triggered troubling thoughts on how the world would handle a future financial crisis. During my long career on the international stage—as economic advisor to Henry Kissinger in the National Security Council in the 1970s, vice chairman of Goldman Sachs (international) in the 1980s and 1990s, and then Undersecretary of State in charge of U.S. geo-economic relations in the early part of this century—I was at the epicenter of a number of such crises and of negotiations to help resolve them. The key to success in such efforts was not just the financial skills of the major players but also their willingness to engage in trustful collaboration.
That ingredient does not exist today. Never have I seen the world so deeply riddled with mistrust on so many economic and political issues. And that mistrust can be the Achilles’ heel of any future negotiation in the event of a new financial crisis—unless we recognize it and figure out how to overcome it before a crisis hits.
Those in high-level positions and around the world must consider how they would manage a new crisis—which is a growing risk with so many countries facing slowing growth, growing debt, inflationary pressures, tariff wars, and currency volatility—and operating under fraught and confrontational political circumstances.
This will be an enormous challenge, and failure will affect all Americans and nearly every person on this planet.
During the last crisis, there was impressive, trustful cooperation between the U.S. and China. But with the intensifying trade war and various other confrontations between the two, attaining that again is likely to be far more problematic—if not impossible.
And tariff-related frictions between the U.S. and its key allies—among the world’s largest market economies—have undermined and in some cases virtually destroyed the mutual trust that has been so critical in resolving issues in the past. Intense trade disputes will make cooperation among them to deal with a new financial crisis far more difficult.
On top of this, a study is underway in Washington as to whether the U.S. should withdraw from the International Monetary Fund (IMF)—the critical global institution in such matters. And questions are being raised at high levels in the U.S. administration as to whether the president should fire Jerome Powell, chairman of the Federal Reserve. Powell enjoys very high credibility in markets and among policymakers around the world and would be an essential player in finding solutions to any new crisis. Both factors add to already high uncertainty and the risks of deepening instability.
Given this rancor, friction, and uncertainty, central bankers and finance ministries of countries who were instrumental in dealing with crises in the past—who are now meeting in Washington for what are known at the IMF Spring Meetings—need to figure out how to avoid, or cope with, the increasingly dangerous threat of a major financial crisis.
In the past, there was usually one major nation that led the process, or served as the designated convenor of the key players. That was mainly the United States, in cooperation with the IMF. If the U.S. won’t be willing to do so this time, or won’t be trusted by others to do so, who will it be?
It hasn’t always been the U.S. France, under its president Valerie Giscard d’Estiang, for example, pulled the G7 together during a series of crises in the 1970s, and its current president Emmanuel Macron has a formidable financial background, as does Canada’s new prime minister Mark Carney. Or, we might rightly ask, will any country be in a position, or be given broad international support, to play this role? If not, the global economy is condemned to major disruption. (China, now a formidable and experienced player in global finance, might look at this moment as an opportunity to step up to play a leadership role, but it is difficult to see the U.S., or some other market economies, agreeing to that.)
The financial community, already rattled by uncertainty, economic nationalism, deepening tariff wars, massive debt increases, and market-debilitating currency instability, should put this on their high-concern list as well, and press political and financial leaders in their countries and around the world to organize a contingency plan grounded in a collaborative effort. With statesmanship, will, and trust this can be done—as in the past. But without a lot of advanced planning, and a willingness to engage in trustful collaboration, a major global financial disaster could be on the horizon.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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